In the attached chart, I used ZH’s own numbers. I combined the first 12 weeks of the year into three bars of four weeks each and calculated the year-over-year growth percentage. As you can see, the improvement has been dramatic.

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ZH’s second chart (below) isn’t really material. Since the first two months of the year were negative, of course the total for the year is still negative. But that isn’t the point, right? We are looking for a trend, after all. And since ZH did not take into consideration the tax-credit that began in April 2009, their unadjusted numbers understate withholdings for the first three months of this year by a substantial amount.

On the unadjusted data, there is about a $6 billion shortfall this year. However, using the guesstimates of the Congressional Budget Office, I estimate:

$463,027 million – Withholding for Q110 (adjusted)

So, it is very likely that the economy has added jobs for all of Q1. This page explains my adjustment methodology and has links to the CBO reports:

http://www.dailyjobsupdate.com/public/tax-cut-adjustments

ZH’s concept of “net withholdings” doesn’t make sense. The purpose of looking at the withholding data is to try and get an idea of how many paychecks are being cut, not to make an accounting of the federal government’s cash flow. If you back-out tax refunds, then you have to consider what changes to the tax code may have had an effect. And the
“American Recovery and Reinvestment Act of 2009″ had many provisions.

The bottom line is that there were almost certainly more paychecks for the IRS to tax in 1Q10 than there were in 1Q09, and that means that the economy is expanding.

ZH also included 6 work days in its Week #1 for 2009, and only 5 for Week #1 2010. Due to the New Year’s Day holiday, some of the carry-over is probably justified, but they cheated a little bit there.

Note: Since the tax credit began in April 2009 and is still in effect, starting this month we can make apples-to-apples comparisons with the raw data.

In the attached spreadsheet (Zero Hedge Rebuttal) I have broken the withholding data down into weeks, and then made three subtotals of four weeks each. Those subtotals appear on the chart, which is on the second page of the spreadsheet. Weeks 13 and 14 are not on the chart since they are part of the second quarter. Week 13 was weak, but Week 14 made up for it.

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

76 Responses to ““Zero Edge” — Rebutting Faulty Tax Analysis”

Thanks BR – This is the stuff that keeps me coming back. I enjoy Mish, ZH and TBP – it’s good to know that you are all keeping each other honest. Not being an expert I aggregate data & sentiment from these blogs to make investment decisions and this was one data point considered.

Zero hedge used to have some really great out-of-the-box ideas. I thought I was special for even reading their commentary. For the most part (excluding 2 posters I can think of) they have now become nothing more than a doomsday machine posting “the end is here/near posts every hour”.

If you ever read the comments section on their political postings, it is one big mix of crazy extremist anti-us propaganda garbage after another. I judge a place by the people who frequent it…

I gave up on ZH about 4 months ago. It is a circle jerk of negativity. Anything that conflicts with their “manipulated markets/doomsday coming tomorrow” agenda is ignored. They had potential to be a real player with some real investigative gems but their political agenda has destroyed them. I think it just proves the old adage that “Every writer needs a good editor.”

I am going to have to agree. I still read it because sometimes they do some good research and get some interesting data points. But more often than not, their main agenda is to bring utter panic to the markets and try to push bring the price of gold to 12k. Conspiracy theories are sometimes grounded in truth, but I dont know how some of the people at ZH sleep at night if they really think what is going on is actually going on.

We initially had Yves Smith outing ZH many months ago about alleged shenanigans from ZH’s past and ZH’s use of a pseudonymous persona , ironically it turned out that Yves Smith is actually a “pen name” for a certain financial consultant named Susan Webber. In the process she lost one of her best contributors (Leo Kolivakis). Felix Salmon that mainstream media financial blogger also piled on, outing ZH for his alleged sins when ZH was a trader. Now we have Ritholtz (King of financial bloggers) trying to stir things up implying that ZH was some how directly challenging Matt Trivisonno commentary on payroll withholding, which is not the case.

If Matt has an issue with ZH`s writings I am certain that ZH would welcome a rebuttal within the ZeroHedge.com forum and if Ritholtz has an issue with ZH`s opinion perhaps he would do well to take him on directly either here or over at Zerohedge. To simply post another blogger`s (Trivisonno) rebuttal of another bloggers (Zero Hedge) writings is at the very least bizarre and at worst a cop-out.

~~~

BR: I published Matt Trivisonno work last week. Zero Hedge called it out as wrong. I allowed Matt to respond here.

That is theoretically possible. The increase could have been caused by a handful of rich people, or an army of poor people. But there is no way of discerning that from the withholding data because the Treasury Department does not break it down. However, the last NFP report did find a good number of jobs.

“ZH’s concept of “net withholdings” doesn’t make sense. The purpose of looking at the withholding data is to try and get an idea of how many paychecks are being cut, not to make an accounting of the federal government’s cash flow. Zero Hedge appears to be using lower “cumulative” withholdings to demonstrate that the government is still collecting less revenue.”

This is where the problem is. ZH is making a different point with the same data.

ZH appears to be arguing the Government is taking in less revenue. Full stop. That’s all.

Mr. Trivisonno appears to be assessing the breadth and depth of the current trend (adjusting for CRA provisions) from the side of the private sector.

They are arguing different sides of the equation. They are both correct. Private sector has a slight uptick and the government, overall, has less revenue. (Adjustment accuracy notwithstanding)

I like Zero Hedge, but they’ve been known to make a mistake or too. It’s the attitude on there that they are always right that rubs some people the wrong way. They do a good job of raising issues that should be raised and they are often the first to release info like that unredacted portion of the Lehman examiners report the other day.

In regards to employment increase in the first quarter. I think it’s legit but I do not think it’s going to continue at a level to have an impact on the overall rate. I look at my own employer in the legal industry. The past quarter we had a slight increase in headcount; but what was obvious was that those that were let go were making way more money than those that were hired.

I believe there’s a movement beyond what was going on the past two years where it was just chop head count to save money. The big hatchet jobs, save for what’s coming to public employees, is probably done in the private sector. I think what you’ll see going forward is the strategic replacement of higher paid workers with lower paid workers wherever that is possible. That’s why I don’t see consumer spending popping anytime soon.

Point out any shred of good/positive strong news over there and they swarm around you will chainsaws ready to attack. They can write anything they want on their site but it certainly is getting more sensationally doomsdayish as the market steadily climbs.

“The increase could have been caused by a handful of rich people, or an army of poor people. ”

My bet is on a handful of rich people. It is very unlikely that an army of poor people would had actually paid income tax (pay is too low). Also if you look at the companies reporting so far (yes I know it is still early) like JPM and BoA made the bulk of their money by trading and not from the real economy ditto GE. Also, foreclosures (real economy) hit a record (Mish). Yes I know that retail saw better sales but I doubt that they pay their people enough to make a dent on the IRS receipts. So while ZH analysis may be off mark I get the feeling that your has its own bias as well…

Well the knee-jerk reaction on Zero Hedge I think is in response to the government and the perma-bulls constantly blowing roses up our collective ass*s all the time. I can accept that perhaps employment figures improved slightly in the first quarter of this year, but it doesn’t change the immense amount of money the government has spent to try and make that happen and the employment returns for that expenditure is a joke.

At the end of the day you have to ask yourself whether this uptick in employment is the start of an economic expansion or just the tail end of stimulus. That’s where the real debate is currently. I just don’t feel comfortable believing the bulls proposition that there’s going to be organic economic growth going forward from this point that’s going to lead to a recovery in jobs.

I’m pointing out that the “actual data” you are using have many shades that you may be ignoring and you shouldn’t. As you have admitted the increase IRS receipts may come from an increase on the very rich earnings – you just don’t know. So why not mention that on your original post? Instead you said this: “The bottom line is that there were almost certainly more paychecks for the IRS to tax in 1Q10″. A more balanced or fair analysis would have read: “The bottom line is that there were almost certainly more paychecks (or higher earnings for some) for the IRS to tax in 1Q10

Thanks MT and BR. Matt’s data is always compelling (sometimes too compelling, to the point where others steal it without even a reference to the source!).

I removed ZeroHedge from my favorites last night. The political zealots and racists is something I’ve come to just take for granted unfortunately (there are quite a number of blogs that have similar political nut jobs).

…But, when people start insinuating that you should die for posting comments derived from 10-Q/Ks, prospecti, audited financials, Reg NMS and other similar sources that seem to run counter to their thesis (which is typically that all of the perceived lack of fairness in the world derives from GS), any utility ZH once had has been lost.

Obviously, the withholding tax data covers the broad economy, and you cited the establishment number of 162,000 jobs created. But the “Employed” component of the “Civilian labor force” in the household survey increased from 138,333,000 to 140,854,000:

“Obviously, the withholding tax data covers the broad economy, and you cited the establishment number of 162,000 jobs created. But the “Employed” component of the “Civilian labor force” in the household survey increased from 138,333,000 to 140,854,000″

And yet today from the BLS we get…

“Regional and state unemployment rates were little changed in March. Twenty-four states recorded over-the-month unemployment rate increases, 17 states and the District of Columbia registered rate decreases, and 9 states had no rate change, the U.S. Bureau of Labor Statistics reported “

BTW I think there is a way to see if the increase on tax receipts is coming from the real economy of from other places. What are the tax receipts from the “financial” states? Are they increasing a lot faster that the rest of the country…?

Robespierre is 100% correct re the banks major profit center currently being trading and that was what was to be expected given the lack of lending, the FED taking their junk assets in exchange for treasuries, and the suspension of FAS 157. Basically the government just said we’ll take your bad debts and here take this money and gamble at a time when assets were deflated across the board. That has more to do with market being where it is today than with any sort of “growth” prospects in the regular economy. Moreover it’s why mom and pop better have an exit strategy when the music stops. We have an even more imaginary banking system now than we’ve ever had in this country.

“You are being ridiculous. Where in history has there been a recovery where only rich people got raises?”

Now that comment probably kills any credibility you had. Every single report (private and government) has indicated that Americans as a whole are falling behind… Moreover the only saving grace in the past use to be the “house equity” now that there is not such thing I expect most Americans to be even more behind that the top %1. Moreover, globalization and the weakening of unions has have a “income depressing” effect on regular workers.

What do you think of just comparing the gross receipts of the Federal Hospital Insurance Trust Fund (medicare) off of the Monthly Treasury Statement to discern a trend in wages since Medicare is taxed on all wages? On that basis, wages are still down 5.1% year over year. M_O_M has taken this approach.

Zero Hedge has been wrong all the way up. They and like-minded data miners/Austrian economics/GOP partisans like David Goldman, Martin Feldstein, and the entire Tea Party movement have been all in cash since the last election

Zero Hedge has collected the tin foil for the hats and the string for making big balls and has launched Attack Plan R…

Ripper: Group Captain, I’m afraid this is not a exercise.

Mandrake: Not an exercise, sir?

Ripper: I shouldn’t tell you this, Mandrake, but you’re a good officer and you have a right to know. It looks like we’re in a shooting war.

Mandrake: Oh, hell. Are the Russians involved sir?

Ripper: Mandrake, that’s all I’ve been told. It just came in on the Red Phone. My orders are for this base to be sealed tight, and that’s what I mean to do: seal it tight. Now, I want you to transmit plan R, R for Robert, to the wing. Plan R for Robert.

…

Goldie: Major Kong, I know you’re gonna think this a crazy but I just got a message from base over the CRM 114. It decodes as Wing Attack plan R. R for Romeo.

Kong: Goldie, did you say Wing Attack, plan R?

Goldie: Yes Sir, I have.

Kong: Goldie, how many times have I told you guys that I don’t want no horsin’ around on the airplane?

Any way you “massage” the data (people PAY to see such lunacy?) you were wrong, continue to be wrong and then disparage your critics because you have too much pride to be wrong.

This is the common MO of the economic analyst who must be right because they cannot accept that the world does not conform to their thinking. Or are you in the camp that the “real” number you cite is actually 333,000?!

Have you ever actually read an NFP report? Since you obviously don’t know, the BLS conducts two surveys: the establishment survey, and the household survey. Seriously, look into it. Make an effort to educate yourself.

“…the household survey has a more expansive scope than the establishment survey because it includes the self-employed, unpaid family workers, agricultural workers, and private household workers, who are excluded by the establishment survey.”

Matt: The ZH article from early April makes absolutely no reference to Ritholtz or to yourself and your March commentary. I think it is great that you are taking ZH on and challenging their assumptions but I wonder why you do it on Ritholtz’s blog and not over at Zerohedge.

It is interesting that ZH beat Barry to the GS breaking news and his been all over it since.

While this debate over analysis is fun, I propose this is a less material indicator of a recovery than is being implied but lost in the debate. The facts are these and we already know them: 1) unemployment is under-counted since the change during the Clinton administration, 2) the economy is creating jobs (we already knew this), 3) it isn’t creating enough most months to account for the approximately 130,000 new entrants per month let alone the unemployed. So rising payrolls are misleading as an economic indicator if: 1) unemployment is growing (which it is), 2) they are quoted ante inflation (which they are while healthcare, food and energy are rising in price), 3) averages can distorted by high earners making more while the median workers make less. so the rich are finally going on a spending spree now that their portfolios are recovering. The vast middle and bottom are increasingly defaulting on mortgages, still ever more likely to be unemployed, and paying more for food, energy, and healthcare. this payroll analysis pales in comparison to the simple facts above. It’s a canard.

fair enough and not continue this circular debate but if you took issue with his April 7 commentary (which had no reference to you or Ritholtz’s blog) why wouldn’t you just challenge ZH on his turf when he published his very brief commentary.

and @ BR who says: “ZH is a blogger who covers Wall Street. I am a Wall Streeter who blogs.”

I forgot that you were a “Wall Streeter” and wasn’t aware you were just a one man blogging show. Also nice to see that your are still “Persona Grata” at CNBC’s parent.

I’ll give you this much, you make up for your lack of humility by being insulting. But, once again, are you STILL “suggesting” that the number you cited of 333,000 is the same as what the BLS (pick a survey, any survey) reported?

If not, admit your error, or try to explain it, and move on. I have no reason to embarass you, no ax to grind, no sense that you are anything other than like most of the analysts….always right (at least in your own mind).

What a lot of bickering over one chart. One would hope that some of the fiscal stimulus dumped into the WORLD economy would filter down into wages and show up as tax receipts for the PEOPLE. After all they used OUR money.

Does this mean everything is going to be right and good from now on? I don’t think so.

[...] Look at this doofus trying to spin me into a typical paranoid psychotic Zero Edge conspiracy theory. Ridiculous! I am, literally, just a guy running some numbers through a spreadsheet. Sure, various things exploded in my vicinity during my recent trip to Iran, but I swear it was all coincidence! [...]

If I’ve understood the rebuttal to ZH in this article it is that last years tax break which came into effect in April means less taxes collected per wage dollar. Further, if Q1 2010 had the same tax regime as Q1 2009, taxes would be higher than Q1 2009.

Now assuming I have got that correct, it doesn’t explain why social security collections are well down in Q1 YOY since SS represents a fixed % in the dollar and has remained the same in Q1 2009 and Q1 2010.

So if an examination of taxes is undertaken as a kind of proxy for job creation, the SS revenues would indicate that job creation is not occurring. Further, this should come as no surprise since the number of people employed — according to official statistics — has been falling. So the SS receipts merely confirm what the BLS is showing about declining job numbers (not withstanding a bump in March).

ZH provides information that others neglect, especially when it comes to the debt/bond markets. Anyone who shuns ZH because of the discussions that follow their articles needs to get their priorities straight.

ZH have always been ahead of the curve in their reporting– others would do well to emulate their reporting.

Actually, do you think you answer to anyone? In a profession where your words and work can effect thousands of lives, you sit on your own throne, wearing no clothes to cover your mistakes and then, when those mistakes are made, you “answer not to the people you mislead in the first place.”

But to then criticize others who are approaching the question in a different way than you suggests that you have no professional or personal integrity.

As we are, as consumers, in a Caveat Emptor world, you have provided the Caveat and proven you are Emptor.

“BR: ZH is a blogger who covers Wall Street.
I am a Wall Streeter who blogs.

So while he was typing, I was speaking to our clients, doing a Tech Ticker interview for Yahoo, a radio interview, and then making arrangements with NBC World News Tonite.””

I had to read that about five times to make sure I read it right. Appearing on multiple news programs enhances your credibility?! Wow.

ZH publishes a lot of dubious material – you have to read critically. To suggest that this blog somehow nails it and gets it right more than ZH means you are rating yourself way too highly. Certainty is the hallmark of a charlatan.

As for Matt – I hope you are in your teens or early twenties. Your hyper defensive and belittling responses are unseemly for anyone who has outgrown the “I’m always right” age.

Correct me if I’m wrong (this is not my area of expertise) but Matt’s point seems to be saying that the tax the government would have collected if the “Making Work Pay” tax credit was not in effect would have been higher than what is actually being collected. I’m not sure why this makes ZH wrong if less tax is actually coming in.

As a businessman with a very wide circle of business owning friends I can assure you hiring has not picked up. The small business survey showed that small businesses are planning to shed staff. Small business is the actual engine of the US economy (not that you would ever guess this by looking at policy).

Barry, glad to see you guys calling out Zerohedge. It feels like I’ve been a lone man beating a drum for quite some time now on their incessant misinformation rooted in unbelievably biased views on WallSt/politics/society/morality etc. I linked back to this thread on my weekly mkt update vid. Keep up the great work.
-BIDHITTER

Looks to me like real household income stayed flat for 3 years after the 2000 recession ended. Don’t tell me that the ‘rich people’ weren’t getting theirs during that period.

Be logical. Is a business owner or manager going to pass along additional pay increases to their employees without taking something for themselves first? And don’t come back with some nonsensical statement about “well, a smart business person would…” Let’s deal in reality. What are people going to do?

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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